Australians to brace for rate changes with mixed signals by experts!

Information verified correct on December 5th, 2016
  • finder.com.au Monthly Reserve Bank Survey shows 28 of 30 expect no cash rate change Tuesday
  • First time since August 2013 for some panelists to expect cash rate to change at next meeting
  • 60% of experts are forecasting rate change this year
  • Over half (52%) of experts are betting interest rates for savings and term deposit accounts to fall
  • Rising cost of housing was big concern, with capital city properties up by 7.9% last year

JANUARY 31, 2015, SYDNEY, AUSTRALIA – While the official cash rate is expected to remain on hold on Tuesday, one of Australia’s biggest comparison websites finder.com.au is warning Australians to brace for interest rate changes as early as March, however the direction the cash rate will move is unclear.

The finder.com.au Reserve Bank Survey, of 30 leading economists and experts, found most are expecting the cash rate to hold at the Reserve Bank’s first board meeting of the year on Tuesday February 3, 2015. However, two experts are bucking the trend, expecting the cash rate to move on Tuesday:

  • Nathan McMullen, RAMS
  • Bill Evans, Westpac

This is the first time since August 2013 that the finder.com.au Reserve Bank Survey showed some panellists forecasting a cash rate change for the next meeting and this was also the last time the cash rate moved (it dropped by 0.25 percentage points). Ever since August 2013, all the panelists for every monthly survey have expected no change to the proceeding cash rate announcement.

Interestingly, almost all of the experts (24 out of 30) have changed their forecast for when they think the next cash rate move will be. The majority (60 percent or 18 experts) are forecasting a cash rate change this year, half of which (nine experts) are expecting a change as early as the first quarter. Compared to last month, just three panelists were expecting the cash rate to move in the first quarter of 2015.

The experts are split on the direction the cash rate will move, with 14 expecting the next cash rate change to be a drop and none of these 14 are expecting the cash rate to rise this year. The remaining 16 experts are forecasting the next cash rate move to be an increase.

Deposit rates are also expected to dive this year according to finder.com.au, especially if the cash rate falls. Over the past year, savings account interest rates have fallen by 0.58 percentage points on average, to 3.29 percent. Over the same period, shorter-term term deposit rates have slightly fallen on average while some longer term rates have slightly risen.

The experts are split on their forecasts for deposit rates as just over half (52 percent) of the 25 panelists who responded to this are expecting savings accounts and term deposit interest rates to fall. Four experts are betting on savings account rates to rise while six expect term deposits to rise.

Michelle Hutchison, Money Expert at finder.com.au, said that despite the mixed signals between experts, some of the incentives for the cash rate to move were shared.

“While it’s unclear which direction the cash rate will move, it’s very likely that we will see some movements this year, with many of the experts citing factors including falling oil prices and the Australian dollar, lower consumer confidence and an uncertain unemployment outlook.

“The housing market was also a big concern for many of the experts, as they fear that lower interest rates will push up property prices further. CoreLogic RP Data Home Value Index shows capital combined city home values rose by 7.9 percent last year, with a median dwelling price of $575,000.

“Regardless of the direction, whether you’re a saver or a borrower you need to work harder this year for bigger returns on your savings and reduce your debts.”

What our experts had to say in the finder.com.au Monthly Reserve Bank Survey:

  • Melissa Browne, A+TA: “With the official summer holidays over for most Australians I don't think we'll see any short term changes in rates ... We've had a mixed start to the new year with a drop in petrol prices and a drop in the Aussie dollar. I don't believe the RBA will do anything with rates until they can start to see the effect of these changes.”
  • Garry Shilson-Josling, AAP: “The equation's simple. There are too many signs of strength – notably a 99,000 rise in employment over the last three months of 2014 – so a rate cut should be off the agenda. But inflation is slowing, and the economy is not only limping along but facing headwinds – notably slumping resource sector investment and a faltering housing market – which all takes a rate hike off the table … The big risk this year is that the RBA overestimates the negative impact of the commodity price slump, in the same way that it overestimated the positive impact of the earlier boom. If that risk is realised, we could have a rate cut that turns out to be unnecessary, adding to the boost to economic growth from the lower Aussie dollar.”
  • Shane Oliver, AMP: “The RBA at its last meeting in December reiterated that a period of stability in interest rates remained prudent and since then strong data for jobs and building approvals has offset softness in economic growth and inflation indicators.”
  • Warren Hogan, ANZ: “Although the balance of risks has sharply shifted towards further rate cuts over the past two months, we think the RBA Board will wait to see a little more data before cutting rates. They will also want to communicate any easing bias that they now see.”
  • Peter Munckton, Bank of Queensland: “The level of rates is already low, while the increase in the unemployment rate has been modest over the past year.”
  • Steven Pambris, Bank of Sydney: “Whilst Economy is soft, property market is of a concern and RBA will be mindful of fueling further … Low Interest Rate environment will remain for sometime a reflection of our weak economy.”
  • David Bassanese, BetaShares: “Economy still holding up Ok and $A much weaker.”
  • Richard Robinson, BIS Shrapnel: “With the A$ falling rapidly over the past 5 months (from around US$0.93 to US$0.81 now, there is now less pressure on RBA to cut rates to engineer a lower dollar. Plus it is still worried about residential price pressures. Although we think rates will be on hold for over a year, it's possible they may cut later this year if the A$ starts rising and/or the housing market cools.”
  • Michael Blythe, Commonwealth Bank: “The case for a rate cut is not complete.”
  • Craig James, Commsec: "There's enough stimulus in the system already, with low petrol prices and the low Australian dollar"
  • Andrew Wilson, Domain Group: “Although bias remains for a near-term cut, latest jobless data better so Bank likely to see if improvement sustained.”
  • Scott Morgan, Greater Building Society: “Although growth is expected to be slightly below trend over the short to medium term the RBA's view is that monetary policy is accommodative as are global conditions. Some concerns also continue to exist in terms of investor lending and property prices which will temper drivers to push rates lower.”
  • Paul Bloxham, HSBC: “Rates are already very low and there are clear signs that monetary policy is working.”
  • Michael Witts, ING Direct: “The housing market remains strong, the decrease in petrol prices has effectively increased consumers disposable income. The labour market has started the year strongly.Therefore, the RBA will likely keep rates unchanged.”
  • Grant Harrod, LJ Hooker: “Stronger than expected unemployment figures, a softer Australian dollar and falling oil prices have all combined to provide the RBA with enough breathing room to hold rates steady. Keeping the cash rate stable is expected to see demand for property remain elevated, as buyers continue to take advantage of the cheap mortgages on offer. That being said, property price growth will vary across markets, depending on affordability barriers and the strength of their local economies.”
  • John Caelli, ME Bank: “Market sentiment has fundamentally shifted over the past two months as oil prices have plummeted and concerns about deflation in Europe grow. This has led to markets expecting 0.50% of rate cuts in the first half of 2015. Growth and consumer confidence have been weaker than the RBA would like and the RBA would also like the dollar lower. They may sit tight this month, but the probability of rate cuts this quarter is high.”
  • Glenn Levine, Moody’s Analytics: “The Aussie dollar has fallen, removing one of the justifications for lower rates. Also there are latent concerns about the housing market that would be exacerbated should prices and activity accelerate again with another rate cut.”
  • Lisa Montgomery, Mortgage & Consumer Finance Expert: “Potentially the RBA will wait for more evidence to support another cut in the official cash rate. Consumer confidence continues to be flat, and although the employment figures are encouraging and oil prices low, its not quite enough to kick start activity. That said - i think they will hold until March.”
  • Huw Bough, My State Bank: “Whilst we believe the odds are in favour of the next move being a cut; it is more likely to occur in March or April. Developments since the end of November will be sufficient to cause the RBA to revisit their statement that the “…most prudent course was likely to be a period of stability in interest rates ... With below trend growth and subdued inflation, further assisted by the significant decline in the price of oil, we believe the odds now favour at least one further reduction in the cash rate – potentially two.”
  • Alan Oster, NAB: “Too early to cut – need to change wording in text”
  • Peter Boehm, onthehouse.com.au: “Falling oil prices and weaker $A should provide economy with sufficient stimulus - at least for now. Dropping rates could fuel above trend unwanted house price growth which is not good for anyone. Still need a clear picture of where Australian economy is going before taking expansionary measures … Economic data coming out of Australia and overseas is somewhat volatile. Need clear direction before a new interest rate strategy is implemented by RBA. Things should become clearer during March and June quarters”
  • Linda Janice Phillips, Propell: “Rates should fall, markedly, but the bank always seems to move well behind market expectations … We now have the highest risk adjusted cash rate globally, if it doesn't come down at least 50 bp, then we will start seeing the exchange rate go up again to US90c or above. Given that India, Switzerland, Japan, Denmark, Euro countries, are playing the low interest, QE, lower exchange rate, game, we cannot afford to remain a high exchange rate outlier to the worlds economies if we want to produce domestic economic growth.”
  • Jonathan Chancellor, Property Observer: “The Reserve Bank mindset remains wait and see.”
  • Noel Whittaker, QUT Business School: “Mixed data”
  • Angus Raine, Raine & Horne: “I don't think a rate cut is far away. Probably March or April. The RBA will take a little bit more time to absorb the impact of slowing Chinese growth, lower oil prices and the outcome of the ECB's stimulus measures.”
  • Nathan McMullen, RAMS: “Benign inflation outlook, low consumer confidence coupled with the need to bolster domestic demand and depreciate the $A before more evidence of growth locally and internationally emerges.”
  • Janu Chan, St. George Bank: “The below trend pace of growth and risks to the outlook suggests that the risk of a cut has increased, but not to the point where we believe the RBA will cut rates. The RBA would prefer a lower Australian dollar to provide this support to the economy.”
  • Scott Haslem, UBS: “While growth and jobs are below the pace that would argue the need for higher rates, neither are they weak enough to suggest the RBA should ease from already record low interest rates.”
  • Nicki Hutley, Urbis: “Economy is currently showing moderate growth and the recent fall in the AUD is assisting already very low interest rates.”
  • Bill Evans, Westpac: We continue to believe that the February rate cut is the most likely scenario. With markets now settling on the strong likelihood of a March move we see February as a much more attractive option for the RBA.

Please note: the above respondents are ordered alphabetically by name of organisation.

Disclaimer: the comments, forecasts, projections and other predictive statements by the panel of experts are assumptions based on currently available information. These forecasts are based on industry trends and economic factors that involve risks, variables and uncertainties. No guarantee is presented or implied as to the accuracy of these forecasts and consumers are advised to read product disclosure statements and understand if financial products are right for them before signing up.

Michelle Hutchison

Michelle is Money Expert at finder.com.au. She's the go to for information, tips or trends in the home loan market or with credit cards, savings accounts and personal loans. You can ask her about shopping deals and life or travel insurance too.

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